HMRC have just lost another tax case about their management of the Enterprise Investment Scheme. Following their loss in Ames, the First Tier Tribunal has ruled in favour of the taxpayers in Oxbotica Ltd. This is a case about the Seed EIS scheme, designed to help start-ups. Oxbotica was founded to spin out technology from Oxford University, developed by several academics. Four individuals and Oxford University subscribed for shares in the company and the university made a loan to the company of £110,000. The company sought authority to issue an SEIS compliance certificate to three individuals, who had subscribed £316 for shares. HMRC turned down the application, asserting that the Department did not consider Parliament would have intended granting relief where the share subscription was just £316. HMRC also said that “in circumstances where the company had already secured funding from the University, HMRC considered that the purpose of the share issue was an attempt to secure capital gains tax relief.”
The Tribunal faced little difficulty in dismissing HMRC’s arguments. The SEIS legislation did not set out a minimum subscription level and there was no basis to add one in. On the facts, it was clear that the money raised had been spent on the company’s qualifying business activity. HMRC’s argument about the purpose being to obtain capital gains tax relief also failed, not least because HMRC had not claimed there was a tax avoidance purpose. It would surely have been impossible to show there was a tax avoidance purpose here, where the shares were subscribed for by the people working on the project and the company’s chairman.
It’s disappointing to find this case (and Ames) going before the Tribunal. Surely Parliament intended supporting start-up businesses with both income tax and capital gains tax reliefs – since that was what was enacted?
Let us hope HMRC reviews its approach to operating the reliefs.